Fordham Journal of Corporate & Financial Law Volume 12 Issue 2 Article 2 2007 A Little Less Conversation, A Little More Action: Evaluating and Forecasting the Trend of More Frequent and Severe Prosecutions Under the Foreign Corrupt Practices Act Justin F. Marceau Follow this and additional works at: https://ir.lawnet.fordham.edu/jcfl Part of the Banking and Finance Law Commons, and the Business Organizations Law Commons Recommended Citation Justin F. Marceau, A Little Less Conversation, A Little More Action: Evaluating and Forecasting the Trend of More Frequent and Severe Prosecutions Under the Foreign Corrupt Practices Act, 12 Fordham J. Corp. & Fin. L. 285 (2007). Available at: https://ir.lawnet.fordham.edu/jcfl/vol12/iss2/2 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Journal of Corporate & Financial Law by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact [email protected]. ARTICLES A LITTLE LESS CONVERSATION, A LITTLE MORE ACTION: EVALUATING AND FORECASTING THE TREND OF MORE FREQUENT AND SEVERE PROSECUTIONS UNDER THE FOREIGN CORRUPT PRACTICES ACT Justin F. Marceau* In the wake of increasingly common, creative, and severe prosecutions under the Foreign Corrupt Practices Act (“FCPA”), scholars and practitioners must acknowledge that the time for talk—i.e., non-punitive voluntary disclosures and abstract debate—has given way to an era of aggressive enforcement actions by the Department of Justice and the Securities Exchange Commission. The bare numbers tell much of the story: the Department of Justice has initiated four times more prosecutions over the last five years than over the previous five years.1 Also instructive are prosecutors’ growing use of novel and ever more broad theories of liability under the FCPA. This Article outlines and discusses in particular the anti-bribery provisions of the FCPA, then identifies recent controversial cases that illustrate the government’s departure from its usual passive approach, and how the government has embraced a more aggressive, or legal, action position. In addition, this Article forecasts other forthcoming theories of FCPA-liability that, although not yet advanced by the * Mr. Marceau graduated from Harvard Law School in 2004. He is currently working as an Assistant Public Defender in the Capital Habeas Unit of the Office of Public Defender, District of Arizona. All views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, the Office of the Public Defender. The author wishes to thank his mother, Mary Marceau, for her careful and timely editing of this piece. He also owes a debt of gratitude to his wife, Rebecca Aviel, for her thoughtful comments throughout the writing process and for marrying him in September of last year. 1. Dan Newcomb, Digests of Cases and Review Releases Relating to Bribes to Foreign Officials under the Foreign Corrupt Practices Act of 1977 (Feb. 28, 2006), available at http://www.shearman.com/lt_022806/. 285 286 FORDHAM JOURNAL OF Vol. XII CORPORATE & FINANCIAL LAW Department of Justice, are likely forthcoming from prosecutors based on their recent zealous theories of liability. I. INTRODUCTION TO THE FCPA Based upon information regarding corporate corruption uncovered during the Watergate investigations, the Securities and Exchange Commission conducted a series of investigations designed to evaluate how widespread the practice of corporate bribery to foreign officials had become.2 The Securities and Exchange Commission’s investigation resulted in disclosures by over 400 companies that had engaged in bribes or other corrupt payments.3 Of these, some 200 companies admitted to making bribe-type payments to foreign government officials.4 Following these investigations, Congress held hearings to assess the severity of the bribery problem, and possible solutions.5 Shortly thereafter, in December 1977, Congress, perceiving this to be an epidemic, responded by passing the FCPA.6 From its inception, the FCPA was a bold and unique piece of legislation in that it criminalized conduct that Congress itself deemed unethical, regardless of the customs and practices of the foreign country where the company was doing business.7 The Act’s impact in early years was marred by controversies regarding the appropriateness of legislating morals,8 but corporate scandals in the 1990s readied the public for the government’s taking a more direct role in enforcing 2. Dan Zarin, DOING BUSINESS UNDER THE FOREIGN CORRUPT PRACTICES ACT 1- 1 (2005); see also Abuses of Corporate Power: Hearings Before the Subcomm. On Priorities and Econ. in Gov’t of the Joint Econ. Comm., 94th Cong. 16-18 (1976) (testimony of Roderick M. Hills, Chairman of the SEC); Wallace Timmeny, An Overview of the FCPA, 9 SYRACUSE J. INT’L L. & COM. 235, 236-37 (1982). 3. Zarin, supra note 2. 4. Foreign Corrupt Practices and Domestic and Foreign Investment Disclosure: Hearings on S. 305 Before the Senate Comm. on Banking, Housing and Urban Affairs, 95th Cong. 116-18 (1977). 5. SEC. & EXCH. COMM’N, REPORT TO THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, 94th Cong., 1st Sess., REPORT ON QUESTIONABLE AND ILLEGAL CORPORATE PAYMENTS AND PRACTICES (May 14, 1976). 6. 15 U.S.C. § 78 (1977). 7. Zarin, supra note 2, 1-2. 8. Id. at 1-2 (explaining that Congress justified the legislation, in part, by noting that a prohibition on bribery would ensure that the market was functioning properly and reward efficient business practices). 2007 A LITTLE LESS CONVERSATION, 287 A LITTLE MORE ACTION ethical business practices.9 Taking advantage of the public interest in policing corporations more closely, the Department of Justice has demonstrated, both through prosecutions and public statements, a commitment to aggressively prosecute corporate bribery.10 Moreover, the unwillingness of many corporate defendants to challenge the Justice Department’s theory of liability in court, opting instead to accept a quick plea agreement in order to minimize negative publicity, has left prosecutors with an almost unchecked authority to define the contours of FCPA liability. Accordingly, not until very recently has it become possible to appreciate just how drastic and far reaching the Department of Justice’s use of the FCPA will be. The short and relatively straightforward text of the Act belies the scope of liability sought by federal prosecutors. The Department of Justice’s recent aggressive enforcement of the FCPA’s provisions has served to illustrate numerous unanticipated theories of liability. This article argues that corporate defendants are now faced with a “Hobson’s Choice”: either accept the Department of Justice’s broad and unprincipled application of the FCPA, or confront the prolonged negative press that is sure to accompany a legal challenge to various theories of FCPA liability. Specifically, in light of the recent upswing in prosecutions, and interpretations being made by the Department of Justice, parent companies, franchisors, non-U.S. residents, and other persons or entities with attenuated links to public officials face the risk of being charged under the FCPA. As discussed below, not all of these theories of liability are the product of a reasoned interpretation of the FCPA. II. FCPA LIABILITY GENERALLY The FCPA makes it unlawful to bribe foreign government officials in order to obtain or retain business.11 The FCPA applies to individuals, 9. Marie Leone, Coming Clean about Bribery, CFO.com, Apr. 03, 2006 available at http://www.cfo.com/article.cfm/6764209?f=related (quoting a senior Department of Justice attorney as saying that there is “a new vigilance at the Department of Justice in terms of identifying and prosecuting FCPA violators”). 10. Id. 11. See 15 U.S.C. § 78dd-2(a) (2005). The statute states that: [i]t shall be unlawful for any domestic concern . , or for any officer, director, employee, or agent of such domestic concern . , to make use of the mails or any 288 FORDHAM JOURNAL OF Vol. XII CORPORATE & FINANCIAL LAW firms, officers, directors, employees, agents of a firm, and any stockholder acting on behalf of a firm. In order to obtain a conviction under the anti-bribery portion of the statute, the government must prove, beyond a reasonable doubt, that the defendant is: 1. a domestic concern12 (any corporation, partnership, association, . which has its principal place of business in the U.S., or which is organized under the laws of a state),13 2. that made use of a means or instrumentality of interstate commerce,14 3. corruptly,15 4. in furtherance16 of an offer or payment of anything of means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, [or] promise to pay . anything of value to . (3) any person, while knowing that all or a portion of such money . will be offered, given, or promised, directly or indirectly, to any foreign official . for purposes of (A)(i) influencing any act or decision of such foreign official . in his . official capacity. Id. 12. Issuers, defined as entities that have a class of securities registered pursuant to § 12 of the Securities Exchange Act, are also liable for violations of the FCPA. See 15 U.S.C. § 78c(a)(8) (2005). Issuers are subject to the same requirements under the FCPA as domestic concerns; however, because a company’s status as an issuer is easily determined and uncontroversial, this article focuses on the liability of domestic concerns. Id. 13. The complete definition of “domestic concern” covers an even larger group of persons and entities: individual U.S. citizens (wherever located), U.S. resident aliens, corporations, and other business entities organized under the laws of a state of the United States or having their principal place of business in the United States, and officers, directors, employees, and agents of these entities, regardless of their nationality.